Question 1

The price elasticity of supply of hot dog buns is estimated to be 1.5. Holding everything else constant, this means that a 10 percent decrease in the price of hot dog buns will cause the quantity of hot dog buns supplied to decrease by

Accepted Answer

A)  1.5 percent. 
B)  15 percent. 
C)  approximately 25 percent. 
D)  approximately 5 percent.

Question 2

Which of the following is one reason why the income of small family farms has decreased over time?

Accepted Answer

A)  Technology has increase farm productivity and market supply. 
B)  The demand for farm products is price elastic. 
C)  The demand for farm products is income inelastic. 
D)  The U.S. population has increased greatly since 1950.

Question 3

According to a study of the U.S. demand for alcoholic beverages, the price elasticity of demand for beer is -0.30. Which of the following could explain why the price elasticity of demand for beer is low?

Accepted Answer

A)  Beer is an inferior alcoholic beverage. 
B)  More and more people are switching to wine and cocktails rather than beer. 
C)  The price of beer is relatively low and for many people it is a habit forming product. 
D)  There are only a few major suppliers of beer.

Question 4

List the five key determinants of price elasticity of demand and explain how each determinant indicates if demand tends to be elastic or inelastic.

Accepted Answer

The answer of List the five key determinants of price...

Question 5

Economists have estimated that the cross-price elasticity of demand between beer and spirits is -0.50, the income elasticity for spirits is 1.21 and the income elasticity for wine is 5.03. These elasticities mean that

Accepted Answer

A)  beer and spirits are complements; spirits and wine are luxuries. 
B)  beer and spirits are normal goods; spirits and wine are luxuries. 
C)  beer and spirits are complements; spirits are substitutes. 
D)  beer and spirits are substitutes; spirits and wine are luxuries.

Question 6

Suppose the price elasticity of demand for cigarettes is -0.4. The FDA decides to regulate tobacco production, which increases the price of cigarettes and causes the quantity of cigarettes demanded to decrease by 25 percent. What is the percentage increase in price which would lead to the 25 percent decrease in quantity demanded? If the price elasticity was -4, what would be the percentage increase in price?

Accepted Answer

The answer of Suppose the price elasticity of demand for...

Question 7

If the percentage change in the quantity of teapots demanded is greater than the percentage change in the price of teapots, then

Accepted Answer

A)  the price elasticity of demand for teapots is greater than 1 in absolute value. 
B)  the demand for teapots is unit-elastic. 
C)  the price elasticity of demand for teapots is equal to zero. 
D)  the price elasticity of demand for teapots is less than 1 in absolute value.

Question 8

The cross-price elasticity of demand between an unlimited texting option and an unlimited call minutes option offered from a cell phone provider would be

Accepted Answer

A)  positive if subscribers consider the services substitutes for each other. 
B)  positive if subscribers consider the services complements to each other. 
C)  negative if subscribers consider the services substitutes for each other. 
D)  negative no matter if subscribers consider the services substitutes or complements for each other.

Question 9

If a 6 percent increase in income leads to a 4 percent increase in quantity demanded for audio books, the income elasticity of demand is

Accepted Answer

A)  -0.67. 
B)  0.67. 
C)  1.5. 
D)  2.

Question 10

If demand is inelastic, the absolute value of the price elasticity of demand is

Accepted Answer

A)  one. 
B)  less than one. 
C)  greater than one. 
D)  greater than the absolute value of the slope of the demand curve.

Question 11

If demand is perfectly elastic, the absolute value of the price elasticity coefficient is

Accepted Answer

A)  infinity. 
B)  zero. 
C)  more than one. 
D)  equal to the absolute value of the slope of the demand curve.

Question 12

If the demand for cell phone service is inelastic, then

Accepted Answer

A)  the percentage change in quantity demanded is greater than the percentage change in price (in absolute value). 
B)  the percentage change in quantity demanded is equal to the percentage change in price. 
C)  the quantity demanded does not change in response to changes in price. 
D)  the percentage change in quantity demanded is less than the percentage change in price (in absolute value).

Question 13

Suppose the cross-price elasticity of demand between DVDs at Amazon.com and DVDs at Buy.com is 3.5. Based on this information, predict what happens when Amazon.com lowers its DVD prices by 10 percent.

Accepted Answer

A)  The quantity of DVDs demanded on Amazon.com will increase by 35 percent. 
B)  The quantity of DVDs demanded on Buy.com will increase by 35 percent. 
C)  The quantity of DVDs demanded on Amazon.com will decrease by 35 percent. 
D)  The quantity of DVDs demanded on Buy.com will decrease by 35 percent.

Question 14

At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week. When he raised his price to $12 per dozen, he still sold 40 dozen per week. Based on this information, the demand for his tamales is

Accepted Answer

A)  perfectly elastic. 
B)  inelastic. 
C)  perfectly inelastic. 
D)  unit-elastic.

Question 15

Figure 6-11 
-Refer to Figure 6-11. What is the value of the price elasticity of supply between g and h?

Accepted Answer

A)  20 percent 
B)  0.5 
C)  2 
D)  0.02

Question 16

Which of the following statements is true?

Accepted Answer

A)  If the price of a good is lowered and total revenue decreases, demand is elastic. 
B)  If the price of a good is raised and total revenue does not change, demand is perfectly elastic. 
C)  If the price of a good is raised and total revenue increases, demand is inelastic. 
D)  If the price of a good is lowered and total revenue increases, demand is inelastic.

Question 17

The price elasticity of supply is equal to

Accepted Answer

A)  the value of the slope of the supply curve. 
B)  the change in quantity supplied divided by the change in price. 
C)  the percentage change in price divided by the percentage change in quantity supplied. 
D)  the percentage change in quantity supplied divided by the percentage change in price.

Question 18

Figure 6-10 
-Refer to Figure 6-10. A unit-elastic supply curve is shown in

Accepted Answer

A)  Panel A. 
B)  Panel B. 
C)  Panel C. 
D)  Panel D.

Question 19

What does price elasticity of demand measure? When is demand elastic? Inelastic? Unit elastic?

Accepted Answer

The answer of What does price elasticity of demand measure?...

Question 20

If the cross-price elasticity of demand for goods A and B is zero, this means the two goods are unrelated.

Accepted Answer

A) True 
 B)False

Exam 6: Elasticity: the Responsiveness of Demand and Supply